Organizational Design: Structure, Culture, and Control

In this chapter, we studied the three key levers that managers have at their disposal when designing their firms for competitive advantage—structure, culture, and control.

Defining organizational design and list its three components.

Organizational design is the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.

The key components of organizational design are structure, culture, and control.

The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one.

How organizational inertia can lead established firms to failure.

Organizational inertia can lead to the failure of established firms when a tightly coupled system of strategy and structure experiences internal or external shifts.

Firm failure happens through a dynamic, fourstep process (see Exhibit 11.2 ).

Defining organizational structure and describe its four elements.

An organizational structure determines how firms orchestrate employees’ work efforts and distribute resources. It defines how firms divide and integrate tasks, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how employees coordinate work efforts.

The four building blocks of an organizational structure are specialization, formalization, centralization, and hierarchy (see Exhibit 11.3 ).

Comparing and contrast mechanistic versus organic organizations.

Organic organizations are characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.

Mechanistic organizations are described by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making.

The comparative effectiveness of mechanistic versus organic organizational forms depends on the context.

Different organizational structures and match them with appropriate strategies.

To gain and sustain competitive advantage, not only must structure follow strategy, but also the
chosen organizational form must match the firm’s business strategy.

The strategy-structure relationship is dynamic, changing in a predictable pattern—from simple to functional structure, then to multidivisional (M-form) and matrix structure—as firms grow in size and complexity.

In a simple structure, the founder tends to make all the important strategic decisions as well as run the day-to-day operations.

A functional structure groups employees into distinct functional areas based on domain expertise. Its different variations are matched with different business strategies: cost leadership, differentiation, and integration (see Exhibit 11.6 ).

The multidivisional (M-form) structure consists of several distinct SBUs, each with its own profit-and-loss responsibility. Each SBU operates more or less independently from one another, led by a CEO responsible for the business strategy of the unit and its day-to-day operations (see Exhibit 11.7 ).

The matrix structure is a mixture of two organizational forms: the M-form and the functional structure (see Exhibit 11.9 ).

Exhibits 11.8 and 11.10 show how best to match different corporate and global strategies with respective organizational structures.

Elements of organizational culture, and explain where organizational cultures can come from and how they can be changed.

Organizational culture describes the collectively shared values and norms of its members.

Values define what is considered important, and norms define appropriate employee attitudes and behaviors.

Corporate culture finds its expression in artifacts, which are observable expressions of an organization’s culture.

Compare and contrast different strategic control-and-reward systems.

Strategic control-and-reward systems are internal governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).

Strategic control-and-reward systems allow managers to specify goals, measure progress, and provide performance feedback.

In addition to the balanced-scorecard framework, managers can use organizational culture, input controls, and output controls as part of the firm’s strategic control-and-reward systems.

Input controls define and direct employee behavior through explicit and codified rules and standard operating procedures.

Output controls guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs.